IMF close to striking aid package deal for Ukraine

Domestic gas prices raised by 50% as part of agreement.

27 March 2014, 5:25pm

2 min read

Ukraine PM Arseny Yatsenyuk

The International Monetary Fund (IMF) is close to agreement with Ukraine on financial assistance worth $14-18bn over the next two years. An agreement still needs approval by the full board of the IMF.

The stand-by arrangement comes at the end of a three-week visit by IMF officials to the country and is expected to unlock a further $10bn in loans for Ukraine from the European Union and the US.

“Following the intense economic and political turbulence of recent months, Ukraine has achieved some stability but faces difficult challenges”, the IMF’s Mission Chief for Ukraine said in a statement.

The deal goes hand in hand with a reform programme for Ukraine’s ailing economy. A cut in energy subsidies to consumers has been one of the conditions of an international rescue deal and on Wednesday Ukraine’s interim government agreed to raise domestic gas prices by 50% in its effort to secure the IMF aid package.

Ukraine’s ousted President Viktor Yanukovich had refused to take this unpopular step but the country’s new Prime Minister Arseny Yatsenyuk told parliament that Ukraine was “on the edge of economic and financial bankruptcy”.

He said that without the austerity measures proposed by the IMF, the economy could contract by as much as 10% this year.

The IMF says a key part of Ukraine’s reform programme will focus on the country’s state-owned energy company, Naftogaz, which imports gas from Russian energy giant Gazprom.

“Over time the programme will focus also on improving the transparency of Naftogaz’s accounts and restructuring of the company to reduce its costs and raise efficiency,” the IMF’s statement added.

According to the IMF, Naftogaz’s deficit in 2013 amounted to close to 2% of national GDP.

Last week the firm’s chief executive was arrested in connection with a corruption investigation but the IMF said it will undertake a review of the country’s anti-corruption framework, the way its laws and regulations are implemented, and the effectiveness of its judiciary and tax administration.